Editor’s Note: Capitol Gains is a member of the ImpactAlpha Podcast Network. The show is made possible by Court Street Group.
Mapping the multiple streams of money through a given system may not be the sexiest area of finance. But the size and direction of these capital flows can mean a neighborhood thrives, or is left behind. On the latest Capitol Gains Podcast, Brett Theodos of the Urban Institute underscored the need for large, long-term investments to truly make a difference in historically underinvested communities.
“We need half a billion to a billion dollars in a single neighborhood over 20-30 years to really catalyze growth,” said Theodos. The mission finance sector, including CDFIs and development finance authorities, can help bridge the gap, but what’s needed is a larger transformation in finance. “We’re spending a penny when we need a dollar,” Theodos said.
Race and place
Theodos highlight two factors that most strongly influence capital flows: race and rurality. “There’s a unique penalty to blackness in America,” he explains. Even when accounting for other variables, the Washington, DC-based institute’s research shows that these neighborhoods consistently receive less investment (see, “The ‘Black Tax’ plagues small municipalities”).
Rural communities also struggle to attract capital because many lack the local institutions, such as banks or loan officers, needed to drive growth. That’s the starting point for the Greenhouse Gas Reduction Fund, a $27 billion effort to dramatically expand local lending for community infrastructure and the green transition (for background, see, “Green bank and community lending plans shift into high gear”).
Data-driven
“We’re interested in investment and where it’s going,” says Theodos. “That might be debt, equity, or other tools.” His team has developed a “capital flows scorecard” to help cities assess their relative performance in attracting investment for needs like small business lending and commercial real estate development. One version of the scorecard assesses the social impact of municipal bonds.
The benchmarks can help local leaders make decisions about where to focus their efforts and can steer investors and philanthropic funders to where their capital might be most catalytic. Atlanta and Denver, for example, are figuring out how to leverage growth, despite challenges, he said. “When we look across cities and we hold everything else equal, there are places that are doing better or worse.”
Matt Posner is a principal at Court Street Group.
James McIntyre is an expert in municipal, affordable housing, and clean energy finance. The opinions expressed in his writing or any other media publication are his own and do not necessarily represent the views of his employer or any affiliated organizations.
